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AFGC reports industry drifting into a “low investment trap”

grocery cartThe Australian Food and Grocery Council’s (AFGC)’s State of the Industry report for 2018 has revealed that the industry is currently in danger of “drifting into a low investment trap” due to uncertainty on return of investment stemming from retail price deflation and rising costs.

The AFGC recommends that the FMCG sector targets investment allowances to lure other investments in Australia which will also help retain jobs and businesses, particularly in regional areas – where approximately 38.8 per cent of the sector’s jobs are located.

The 2018 report highlighted the importance of the A$131 billion food and beverage, grocery and fresh produce sector to the future of Australian manufacturing. Despite challenging conditions in 2016-17, it now accounts for nearly 40 per cent of Australian manufacturing jobs.

“This year’s State of the Industry highlights the importance of the food and grocery sector to Australia’s economy, and its resilience in the face of a significant loss of competitiveness that has impacted Australian manufacturing more broadly,” said AFGC CEO Tanya Barden Barden.

“There is no doubt Australia’s largest manufacturing sector is facing a tough environment where input costs are rising on everything from commodities, particularly caused by the drought, to labour to energy, and six years of retail price deflation continues to cut margins, placing the sector under increasing pressure.

Barden said that these factors created relentless pressure through the supply chain, with companies having to make efficiency improvements in order to stay competitive.

“It has now however reached the stage where this pressure is placing strain on the sector,” Barden said.

The food and grocery sectors directly employ 324,450 people, down 1.4 per cent from 2016-17. There was a decrease in industry turnover by 2 per cent to A$131 billion, while net capital expenditure was down 10.3 per cent to A$2.9 billion off the back of a decade of declining investment.

Barden said this reflects a “concern that increases in input costs coupled with depressed pricing makes the case for investment difficult at this critical time.”

The latest industry report also highlighted that the sector’s growth prospects increasingly lie in export channels.

“An increase of 7.7 per cent in exports to 36.1 billion in 2017-18 shows the ability to realise premium prices for value-added food and beverage products in growing export markets is a key source of future growth and contrasts with the low growth, deflationary domestic trading environment,” added Barden.

“For the Australian economy to grow, we need strong regional employment, a strong manufacturing base and export led growth. The food and grocery sector offers these three aspects but requires policies that address cost competitiveness and ensure fairness in retailer supplier trading.”

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